Egypt - Turkey - PDF

Document Sample
Egypt - Turkey - PDF Powered By Docstoc
					Egypt – Turkey Free trade
       Agreement
                                                                                                       2




1. Background to the Agreement
Egypt and Turkey began the first of six rounds of trade negotiations in 1998, signing a final draft
of the Egypt–Turkey Free Trade Agreement on December 27, 2005. The ratified FTA came into
effect on March 1, 2007 in a context governed by the Euro-Med process.


THE EURO–MED CONTEXT
In November 1995, European and Mediterranean countries signed the Barcelona Declaration,
agreeing to establish a free trade area by 2010 and
regional as well as bilateral partnerships on trade,
economic, and security matters. Thus, in 2001, Egypt      Egypt-Turkey FTA and the Egypt-EU
and the EU signed the Egypt-EU Association                        Association Agreement
                                                      Many aspects of the Egypt-Turkey FTA
Agreement, providing each reciprocal market access
                                                      resemble the Egypt–EU Association
in industrial and selected agricultural products; and Agreement, with entire sections adopted
Egypt and Turkey recently signed their own FTA. In    from it. Its rules of origin are identical to
addition, trade between the EU and Turkey is          those governing each country’s agreements
governed by a Customs Union, and Turkey is seeking    with the EU (e.g., the “one list” is included),
to become a full member of the EU.                    allowing them both to benefit from Pan-Euro
                                                             Med rules of origin. In addition, the tariff
                                                             phase period out for Egypt’s nonagricultural
In part, bilateral trade agreements within the context
                                                             goods is nearly identical to that granted to
of the Euro–Med partnerships, such as that between
                                                             Egypt by the EU in recognition of Egypt’s
Egypt and Turkey, are motivated by Pan-Euro Med              developing country status. The Association
rules of origin that permit three-way or diagonal            Agreement specifies four categories of
cumulation. Most agreements provide for two-way or           goods at the product level, delineating a
bilateral cumulation, which permits the reciprocal use       phase-out period of 3 years, 9 years, 12
of inputs from countries party to an agreement.              years, and 15 years. These schedules have
                                                             been largely incorporated, and on a product-
Diagonal cumulation allows partners to count inputs
                                                             specific basis, into the Egypt-Turkey FTA
of third-parties—countries not party to an
                                                             with specified years—2008, 2014, 2017, and
agreement—in meeting the rule of origin. Thus, Egypt         2020—to phase out tariffs on the four
may use inputs from Turkey in its exports to the EU          categories of goods. (The only differences
and still retain market access benefits under the            between the Egypt-EU and Egypt-Turkey
Egypt–EU Association Agreement. Likewise, Turkey             agreement lists are three HS codes related
may use inputs from Egypt and still claim duty free          to electrical engines and generators, which
                                                             were moved from the third to the fourth list.)
access to the EU.

In this manner, Pan-Euro Med rules of origin enable a regionwide market that goes beyond simple
bilateral trade flows, leveraging the industrial infrastructure of neighboring countries and others in
                                                                                                  3




the region. To participate in diagonal cumulation with the EU, partners must (1) have concluded an
FTA with the EU and with each other, though the agreements need not be identical; (2) follow
identical rules of origin in the cumulation process; and (3) notify the EU of intent to cumulate with
other free trade partners, and obtain EU approval.

Although these rules of cumulation offer more trade opportunities, seizing these opportunities will
require that Egypt and its partners implement a regional integration strategy. Diagonal cumulation
provisions will provide benefits only to the extent that governments and industry take the final
steps. Egypt and Turkey have significant work ahead to leverage the full advantages of the Pan-
Euro Med rules of origin. These include the following:
•   Raising producers’ awareness of the advantages and documentation requirements of diagonal
    cumulation.
•   Improving customs cooperation between partner countries.
•   Reducing nontariff barriers by simplifying standards and testing rules and procedures.
•   Spreading knowledge of regional materials and sourcing.
•   Standardizing and automating verification procedures, including certificates of origin.
•   Enabling local legislation and regulations to encourage investment in new cost-competitive
    capacities.
Should Egypt choose not to pursue a regional strategy, industries and governments in neighboring
countries might still very well do so themselves. If so, Egypt’s exports to the EU would face
heightened competition as other preferential suppliers in the Pan-Euro Med area gain from
productivity and specialization efficiencies (costs, services, and quality) and new investments.


OTHER MOTIVATIONS AND BENEFITS
In addition to the obligation of the Barcelona Declaration, the Egypt–Turkey FTA was motivated
by a number of factors. The FTA not only provides Egyptian industrial exports with total and
immediate free access to the large Turkish market, but also facilitates access to the EU market.
Egyptian exporters face stiff challenges in accessing that market even with the Egypt–EU
Partnership Agreement. The Egypt–Turkey FTA is expected to help exporters meet the EU’s strict
regulations and standards by integrating Turkish and Egyptian industries and by enabling Egyptian
exporters to benefit from Turkey’s experience in the EU. Just as important, the FTA is expected to
increase confidence in the Egyptian economy and further position it as a hub to other African,
European, and Arab countries. It is expected to generate substantial investments in Egypt and
Turkey, which will help generate additional employment opportunities in the two countries. And
most generally, the heightened competition of freer trade usually boots productivity and improves
standards of living.

In Chapter 2 we summarize the main provisions of the Egypt–Turkey FTA. Chapter 3 describes
trade and investment between Egypt and Turkey. Chapter 4 describes the potential economy-wide
impact of the FTA on Egypt’s economy, covering exports and imports, employment, and overall
welfare, using the GTAP Computable General Equilibrium Model. It also examines the FTA’s
impact on specific sectors. The report concludes by examining trade barriers facing Egyptian
exporters in the Turkish market (Chapter 5).
                                                                                                    4




2. Main Provisions of Agreement
The Egypt–Turkey FTA has four major components: the main text, Protocol I, Protocol II, and
Protocol III. Protocol I relates to the abolition of customs duties and charges having equivalent
effect on imports between Egypt and Turkey. Protocol II relates to the exchange of concessions in
basic agricultural, processed agricultural, and fishery products between Egypt and Turkey.
Protocol III relates to the definition of the “originating products” and methods of administrative
co-operation. The full text of the agreement, including attachments, can be accessed through the
Trade Agreements Sector website (http://www.tas.gov.eg/English/Trade%20Agreements/
Countries%20and%20Regions/Europe/turkey).


MAIN TEXT
The main text of the Agreement consists of 39 articles. Its key provisions include the following:
•   Articles 4 and 6 abolishes Customs duties and charges having equivalent effect on imports,
    and all quantitative restrictions on imports and measures having equivalent effect in
    accordance with the provisions of the Agreement, and stipulates that no new measures on
    imports may be introduced and that those already applied may not be increased in trade
    between the parties.
•   Articles 7 and 8 abolishes customs duties and charges having equivalent effect on exports,
    and all quantitative restrictions on imports and measures having equivalent effect in
    accordance with the provisions of the Agreement, and stipulates that no new measures
    whatsoever on exports may be introduced, and that those already applied may not be
    increased in trade between the parties.
•   Article 20 lays down the system of Pan-Euro-Med cumulation of origin, which governs the
    application of the harmonized preferential rules of origin between the two countries.
•   Article 23 governs the rights and obligations of the parties with respect to subsidies to be
    administered by Articles VI and XVI of the GATT 1994, the WTO Agreement on Subsidies
    and Countervailing Measures, and the WTO Agreement on Agriculture.
•   Article 28 outlines means of promoting investment and technology flows between the two
    countries to achieve economic growth and development.
•   Article 29 establishes a framework for achieving gradual liberalization in trade in services in
    accordance with the provisions of the WTO General Agreement on Trade in Services
    (GATS).
                                                                                                            5



Articles that outline preventive and defensive measures include the following:
•       Article 14 allows Egypt to take exceptional measures to protect infant industries or sectors
        that face difficulties in the form of increased customs duties. In this case Customs duties
        applicable on imports from Turkey into Egypt may not exceed 25 percent ad valorem and
        must maintain an element of preference for products originating in Turkey. The total value of
        imports of products subject to these measures may not exceed 20 percent of total imports of
        industrial products from Turkey, as defined in Article 3, during the last year for which
        statistics are available. These measures can be applied for a period not exceeding five years.
•       Articles 15 and 16 allow parties to take measures against dumping or to apply safeguard
        measures in accordance with WTO Agreements.
•       Article 17 allows both parties to take measures in case of serious shortage in an essential
        product to the exporting country that leads to serious difficulties.
•       Article 19 allows either party to take measures in case of balance of payments difficulties in
        accordance with relevant WTO and IMF articles.
Through Articles 30 and 31, the FTA establishes an Egyptian–Turkish Joint Committee with
representatives to administer the FTA, resolving problems arising during implementation and
discussing the possibility of further concessions.


SCHEDULES OF CONCESSIONS
Protocols I and II attached to the main text provide the schedules of concessions. Protocol I
covers the abolition of customs duties and charges having equivalent effect on imports between
Egypt and Turkey; Protocol II covers the exchange of concessions in basic agricultural, processed
agricultural, and fishery products.


Industrial Products
Industrial products (HS 25 to HS 97) are treated in accordance with Protocol I. One part covers
Egypt’s exports to Turkey and the other covers Egypt’s imports from Turkey. Industrial products
originating in Egypt shall enjoy an immediate removal of all customs duties and other charges
having equivalent effect, when the FTA enters into force. Therefore, all Egyptian exports of
industrial products will enjoy free access to Turkey.1 Customs duties on industrial products
originating in Turkey shall be gradually abolished according to the four lists attached to the
protocol.
•       List 1 covers raw materials that are important as inputs for most industries. This list enjoys 75
        percent reduction from the Most Favored Nation (i.e. non-preferential) duty from the day of
        entry into force of the agreement. Products on the list will enter Egypt duty-free in the second
        year of entry into force of the agreement (i.e., 2008). The list consists of about 2,070 HS tariff


    1
    Products in Annex I of the FTA are treated as agricultural or processed agricultural products and are
not considered industrial products even though some are classified between chapters 25 and 97 of the HS.
                                                                                                                       6



     lines, including aluminum ores, sodium chloride, sulphur, wood, parts of machines,
     aluminum oxide, and copper alloys. Egypt’s MFN duties on those products are 0, 2, 5, or 10
     percent.
•    List 2 covers intermediate goods. Tariff phase-out for these products will start in 2008.
     Egyptian imports will enjoy duty-free access starting in 2014.The list consists of about 1,204
     HS tariff lines, including carbon, chemical preparations, papers, glasses fibers, tubes and
     pipes of vulcanized rubber, insecticides, and vacuum flask. Egypt’s MFN duties on those
     products are 2, 5, 10, 20, or 30 percent.
•    List 3 covers final goods for which tariff phase-out will begin in 2010 and end with complete
     liberalization in 2017. The list consists of nearly 1,650 HS lines, including apparel, textiles,
     shoes, iron and steel, and electrical equipments and machines. Egypt’s MFN duties on those
     products are 2, 5, 10, 20, or 30 percent.
•    List 4 includes mainly vehicles and some electrical engines and generators. Tariff phase-out
     will occur from 2011 to 2020. The list includes only 23 HS lines. Egypt’s MFN duties on
     those products are 10, 30, 40, or 135 percent.
Tariff reductions for Egyptian imports are summarized in Table 2-1.


Table 2-1.Tariff Phase-out for Egyptian Imports of Industrial Products from
Turkey, 2007–2020
    List       07       08       09       10       11       12       13       14       15       16       17       18       19       20

     1     75%      100%     -        -        -        -        -        -        -        -        -        -        -        -


     2     -        10%      25%      40%      55%      70%      85%      100%

     3     -        -        -        5%       10%      25%      40%      55%      70%      85%      100%

     4     -        -        -        -        10%      20%      30%      40%      50%      60%      70%      80%      90%      100%



Agricultural, Processed Agricultural, and Fishery Products
Concessions on agricultural, processed agricultural, and fishery products are outlined in Protocol
II. The two parties have agreed to grant each other concessions either as tariff rate quotas (TRQs)
or tariff reductions on agricultural, processed agricultural, and fishery products. The two parties
exchanged the same concessions on processed agricultural products.

Protocol II has two tables of concessions. Table A includes agricultural and processed agricultural
products originating in Turkey that will be subject to TRQs and/or reduced duties when exported
to Egypt. Table B includes agricultural, processed agricultural, and fishery products originating in
Egypt that face TRQs and/or reduced duties when exported to Turkey. Thus, Egyptian exports of
agricultural products have better market access opportunities into the Turkish market than
Turkish exports of similar products into the Egyptian market. Moreover, Egyptian fishery
exports, except HS 0301, face a 50 percent MFN duty reduction when entering the Turkish
market, while some live plants will access the Turkish market on a duty-free basis. Although
                                                                                                                    7



limited, the products listed in Tables A and B (Tables 2-2 and 2-3) are important for both
countries. Nevertheless, the two countries may discuss expanding those concessions at a later date
through the joint committee.

Table 2-2. Tariff Concession Schedule for Turkish Exports of Agricultural and
Processed Agricultural Products into Egypt
                                                                                                           Tariff Reduction
    CN Code                       Product Description                               Quantities (tons)   from MFN Duties (%)

  0802.21        Hazelnuts or filberts (Corylus spp)                                    2,000                100

  0802.22

  0804.20        Figs                                                                     500                100
  0809.20        Cherries (including sour cherries)                                       500                100
  0813.10        Dried apricots                                                           500                100

  1507.90.91     Soya-bean oil, semi-refined in bulk                                   10,000                100

  1512.11        Crude sunflower or safflower oil                                      20,000                100
  1512.19.91     Sunflower seed oil, semi-refined in bulk
  1515.21        Crude maize (corn) oil and its fractions                               10,000                100

  1517           Margarine; edible mixtures or preparations of animal or                 1,000                100
                 vegetable fats or oils or of fractions of different fats or oils
                 of this chapter, other than edible fats or oils or their
                 fractions of heading 1516
  1704           Sugar confectionery (including white chocolate), not                    2,000                 15
                 containing cocoa
  1806           Chocolate and other food preparations containing cocoa                  1,000                 15
  1902           Pasta, whether or not cooked or stuffed (with meat or                   1,000                 15
                 other substances) or otherwise prepared, such as spaghetti,
                 macaroni, noodles, lasagna, gnocchi, ravioli, cannelloni;
                 couscous, whether or not prepared
  1905           Bread, pastry, cakes, biscuits and other bakers’ wares,                 1,000                 15
                 whether or not containing cocoa; communion wafers,
                 empty cachets of a kind suitable for pharmaceutical use,
                 sealing wafers, rice paper and similar products
  2001.10        Cucumber and gherkins, prepared or preserved by vinegar                 1,000                 15
                 or acetic acid
  2008           Fruit, nuts and other edible parts of plants, otherwise                  500                  15
                 prepared or preserved, whether or not containing added
                 sugar or other sweetening matter or spirit, not elsewhere
                 specified or included
  2009           Fruit juices (including grape must) and vegetable juices,                500                  15
                 unfermented and not containing added spirit, whether or
                 not containing added sugar or other sweetening matter
  2102.10        Active yeasts                                                           3,000                 15
                                                                                                               8




Table 1-3. Tariff Concession Schedule for Egyptian Exports of Agricultural and
Processed Agricultural Products into Turkey
    CN                                                                                                Tariff Reduction
   Code                                Product                                 Quantities (tons)   from MFN Duties (%)

 Chap. 3   Fish and crustaceans, molluscs and other aquatic invertebrates       Unlimited                 50
           (excl. 0301)
 0602      Other live plants (including their roots), cuttings and slips;       Unlimited                100
           mushroom spawn (excl. 0602.90.91, 99)
 0603      Cut flowers and flower buds of a kind suitable for bouquets or             15                 100
           for ornamental purposes, fresh, dried, dyed, bleached,
           impregnated or otherwise prepared
 0701.90   Other potatoes, fresh or chilled                                          400                 100
 0703.20   Garlic, fresh or chilled                                                  100                 100
 0705      Lettuce (Lactuca sativa) and chicory (Cichorium spp.), fresh or           600                 100
           chilled
 0706      Carrots, turnips, salad beetroot, salsify, celeriac, radishes and
           similar edible roots, fresh or chilled
 0709      Other vegetables, fresh or chilled (excl. 0709.90.31, 39)
 0710      Vegetables (uncooked or cooked by steaming or boiling in
           water), frozen (excl. 0710.80.10)
 0711      Vegetables provisionally preserved (for example, by sulphur
           dioxide gas, in brine, in sulphur water or in other preservative
           solutions), but unsuitable in that state for immediate
           consumption (excl. 0711.20, 40)
 0712      Dried vegetables, whole, cut, sliced, broken or
           in powder, but not further prepared
 0804.10   Dates, fresh or dried                                                    5000                 100
 0804.50   Guavas, mangoes and mangosteens, fresh or dried                          1000                 100

 0810.10   Strawberries, fresh                                                       200                 100
 0909      Seeds of anise, badian, fennel, coriander, cumin or caraway;              100                 100
           juniper berries
 0910      Ginger, saffron, turmeric (curcuma), thyme,                               100                 100
           bay leaves, curry and other spices
 1006.20   Husked (brown) rice                                                     30000                 100
 1006.30   Semi-milled or wholly milled rice, whether or not polished or           10000                  50
           glazed
 1202      Groundnuts, not roasted or otherwise cooked                               500                 100
 1704      Sugar confectionery (including white chocolate), not containing          2000                  15
           cocoa
 1806      Chocolate and other food preparations containing cocoa                   1000                  15

 1902      Pasta, whether or not cooked or stuffed (with meat or other              1000                  15
           substances) or otherwise prepared, such as spaghetti, macaroni,
           noodles, lasagne, gnocchi, ravioli, cannelloni; couscous, whether
           or not prepared
 1905      Bread, pastry, cakes, biscuits and other bakers’ wares, whether          1000                  15
           or not containing cocoa; communion wafers, empty cachets of a
           kind suitable for pharmaceutical use, sealing wafers, rice paper
                                                                                                                      9



         CN                                                                                                  Tariff Reduction
        Code                                Product                                   Quantities (tons)   from MFN Duties (%)
                and similar products
    2001.10     Cucumber and gherkins, prepared or preserved by vinegar or                 1000                  15
                acetic acid
    2008        Fruit, nuts and other edible parts of plants, otherwise prepared or         500                  15
                preserved, whether or not containing added sugar or other
                sweetening matter or spirit, not elsewhere specified or included
    2009        Fruit juices (including grape must) and vegetable juices,                   500                  15
                unfermented and not containing added spirit
    2102.10     Active yeasts                                                              3000                  15



RULES OF ORIGIN
Protocol III outlines the rules of origin under the FTA. Both parties will apply the Pan-Euro-Med
rules of origin, which allow goods produced from materials originating in any Euro-Med
countries to enter the EU market with preferences. As the Egypt–Turkey FTA enters into force,
Egypt and Turkey can benefit from cumulation of origin under the Pan-Euro-Med rules of origin,
establishing originating integrated industries and exporting resulting goods into the EU. These
cumulation opportunities will likely expand with the entry into force of other Agreements by both
Egypt and Turkey with other Euro-Med countries under the auspices of the Barcelona
Declaration.2


Definition of Originating Products
Protocol III of the Egypt–Turkey FTA defines originating products as products that are either
wholly obtained in Egypt within the meaning of Article 5 or “products obtained in Egypt
incorporating materials which have not been wholly obtained there, provided that such materials
have undergone sufficient working or processing in Egypt within the meaning of Article 6.” The
definition of these "sufficient" operations is presented in Annex II. The annex contains a
complete list of operations that are considered as conferring origin to a non-originating raw
material for all products. Those operations might involve one or a combination of the following
types of criteria:

•       A minimum percentage of value-added that has taken place in Egypt
•       A specific process that must have taken place in Egypt
•       Restrictions stating that specific inputs must be wholly obtained in Egypt
•       Change of tariff heading.


Cumulation Concept
In the context of the Pan-Euro-Med zone, cumulation means that


    2
   Since the Pan-Euro-Med Rules of Origin are quite complex, we encourage interested readers to read
Protocol III at http://www.tas.gov.eg/English/Trade%20Agreements/Countries%20and%20Regions/
Europe/turkey
                                                                                                   10



products that have obtained originating status in one partner country may be used with products
originating in another partner country without prejudice to the preferential status of the finished
product. In the case of cumulation the working or processing carried out in each partner country
on originating products does not have to be ’sufficient working or processing’ within the meaning
of Article 6 in order to confer on the finished product, the origin of the partner country but it must
go beyond the minimal operations in Article 7.3
As indicated earlier, in bilateral cumulation materials are imported from a country to which the
finished product will be exported (e.g. Turkish materials processed in Egypt for export to
Turkey). But with diagonal cumulation, materials are imported from a country other than the
country to which the finished product will be exported (e.g., Turkish materials processed in Egypt
for export to the EU).


No Draw Back Rule
In the Pan-Euro-Med zone drawback is generally prohibited in diagonal trade. Article 15 in
Protocol III of the Egypt–Turkey FTA provides that non-originating materials used in the
manufacture of products originating in Turkey, Egypt, or in one of the other Euro-Med zone
countries cannot be subject in Egypt or in Turkey to drawback when those manufactured products
are destined for export to the zone. However, Egypt and Turkey may, except for products falling
within HS Chapters 1 to 24, benefit from drawback until December 31, 2009 subject to the
following provisions:
•   A 5 percent rate of customs charge shall be retained in respect of products falling within
    Chapters 25 to 49 and 64 to 97 of the Harmonized System, or such lower rate as is in force in
    Egypt or Turkey;
•   A 10 percent rate of customs charge shall be retained in respect of products falling within
    Chapters 50 to 63 of the Harmonized System, or such lower rate as is in force in Egypt or
    Turkey.4
Thus, the protocol allows Egyptian exporters to benefit from drawback in purely bilateral trade
between Egypt and Turkey (until 2009 and not including HS chapters 1-24). In diagonal trade the
Egyptian exporters may apply for preferential proof of origin and pay duties on imported parts or
they may not apply for preferential proof of origin and benefit from drawback on imported parts.
The decision depends on the preferential margin on the exported product and the rate of duty on
imported materials.


Proof of Origin
To benefit from tariff concessions granted in preferential agreements, products must be
originating and exporters must have proof of origin. To enable operators to fully benefit from the


3 A User's Handbook to the Rules of Preferential Origin used in trade between the European Community,
other European Countries and the countries participating to the Euro-Mediterranean Partnership, p 10.
  4 Egypt-Turkey Free Trade Agreement, Protocol III, Article 15, paragraph 7.
                                                                                             11



system it is necessary to submit either a movement certificate EUR.1; a movement certificate
EUR-MED; or an invoice declaration given by the exporter on an invoice, a delivery note, or any
other commercial document that describes products in sufficient detail to enable identification.
An invoice declaration may be made out by an approved exporter or by any exporter for any
consignment consisting of one or more packages containing originating products whose total
value does not exceed EUR 6,000.